All posts tagged Italian bonds

Spanish and Italian bond yields edged higher as investors wary of a disappointing outcome at a meeting of euro-zone finance ministers later in the day continued to trim holdings of riskier debt. Dow Jones’s Martin Essex discusses in the video above.

By Neelabh Chaturvedi and Michele Maatouk

Spanish and Italian bond yields lurched higher in thin trading Monday, as investors wary of a disappointing outcome at a meeting of euro-zone finance ministers later in the day continued to trim holdings of riskier debt.

The latest market turmoil will likely ratchet up pressure on finance ministers meeting later Monday as the optimism following the June European Union summit seems to have worn off. Details on the plan to inject money into Spain’s beleaguered banking system are still sketchy, while Finland and the Netherlands have expressed their opposition to plans to allow the euro zone’s permanent rescue fund to buy bonds issued by fiscally frail euro-zone countries.

“This meeting could trigger a further risk-off move as the limitations of what was agreed at the previous EU summit become ever more obvious,” interest rate strategists at Rabobank International said in a note to clients.

In the European morning, the 10-year Spanish bond yield was up 0.10 percentage point at 7.02%, according to Tradeweb, while the corresponding Italian bond yield was 0.10 percentage point higher at 6.13%.

The pressure was more pronounced on shorter maturities, with two-year Italian bond yields spiking by 0.29 percentage point to 4.35% and the two-year Spanish bond yield rising by 0.16 percentage point to 4.98%.

The rise in Italian bond yields now means the 10-year Italian benchmark was yielding more than the Irish benchmark, although the corresponding Irish gilt has a smaller duration.

Spanish government bond yields hit a fresh euro-era high Thursday after Moody’s Investors Service became the latest ratings agency to downgrade the beleaguered nation’s debt, increasing speculation that a full bailout for Spain isn’t far away. Equity markets were moving lower after being mostly flat in the European morning.

Italian debt yields also climbed sharply ahead of a key bond auction, while German Bunds benefited from the resulting flight to safety, ending their recent weak run.

The yield on Spain’s 10-year government bond rose to as high as 6.96%, a new euro-era record and dangerously close to levels considered as unsustainable, while the Italian 10-year was quoted higher at 6.34%, the highest yield in nearly four months.

The yield on the 10-year German benchmark was quoted 0.02 percentage point lower at 1.505%

Newedge said demand is difficult to predict as there are opposing forces at play. “We certainly know Italy will have to pay higher yields to attract market demand,” it said. “The current level of spreads and yields are certainly not reflecting the fundamental picture for the country, which, although in the middle of a recession, is not broke,” it added.

In the European morning, the benchmark Stoxx 600 index was down 1%, the U.K.’s FTSE 100 was down 1%, Germany’s DAX was down 1% and France’s CAC-40 was 1% lower.

Two weeks after a successful debt exchange helped avert the risk of a disorderly default in Greece, bond markets have found a new target in the euro zone: Spain.

Spanish bond yields are on the rise. The 10-year government bond yield Friday climbed above 5.50%, a level not seen since January.

Having stolen a march over its peer Italy last year, Spanish bond yields are now again higher than those on similar dated Italian debt. With concerns over Greece abating, Spain is increasingly being seen as the next flashpoint in the euro zone.

The initial trigger for the weakness in Spanish debt was the new government’s decision to unilaterally revise up its budget deficit targets for this year.

The ability of governments in the periphery to get their debts on a more sustainable footing was always going to be crimped given the backdrop of slowing economic growth and more austerity. But with even their willingness now in question, investors are turning cautious.

The economic backdrop in Spain is perilous and that leaves the door ajar for a further rise in yields that could revive concerns across the region.